BRRRR Reality Check for a Newbie

[Emily Register]

Hi All! I have 2 rental properties that I purchased this summer (yay!), neither of them were BRRRRs. Just getting my feet wet in real estate. Now I am shifting to targeting a good BRRRR property. I am in need of some help understanding the numbers behind a BRRRR. I have read most of the BP books, listened to many podcasts, read countless articles and posts about successful BRRRR properties. But when it now comes time to crunch my own actual numbers I can't seem to repeat any of the success stories I am hearing (maybe that's my problem, high expectations?). I keep hearing/reading of using the BRRRR method to use the same sum of money over and over and over again, thus leaving little to no money in a property. I have yet to find an analysis where that actually works. My biggest hangup is in the 75% LTV refinance amount that is standard for most lenders. (Yes, I know commercial lenders may have a higher LTV, but also higher rates). That 75% LTV refinance usually has me leaving ~$10k-$20k in a property. A lot more than what I keep reading stories about.

Help me understand what I am missing! Am I reading too many 'home run' BRRRR deals? Have I not found a property cheap enough yet? Do I need to find a different lender who can refinance higher than 80% LTV with low rates? For context I am located in Raleigh NC, looking in the Greenville NC market.

[Jay Hinrichs]

Originally posted by @Michael Temple:

@Emily Register I will tell you I am also in the same boat as you. I have a few rental properties that were not BRRRR and I read @David Greene's book on BRRRR and loved the concept. I started looking immediately only to run into the same problem you are experiencing. I have not found a single property yet that will meet these specs. The issue is you have to get it so far below market value that it is really hard to find.

Here is what I have discovered so far...

1. You probably won't find the deal on the MLS or through an agent. I have found even the REO properties are priced too high to make BRRRR work.
   
   
2. You will probably need to find "off-market" deals directly from sellers that *might* work.
   
   
3. Hard money loans will be difficult to use because of the expense of the loan and most of the national lenders in this space have minimum project sizes of 63K to 100K depending on the company. In my market that puts a lot of otherwise good deals out of reach because they won't go low enough.
   
   

Now every market is different and there are investors with a lot more experience than me, but so far I am with you, I have found it very difficult to find properties that will make the cut and if I wait for properties to come down anywhere near where I need to be another investor buys them long before I ever get there. They may have more cash, better lenders, or better setups to get the rehab done, but however, they are doing it I can't seem to do what they are doing.

Last, if you do find a deal that makes it you better double and triple check with your long term lenders about the refinance to make sure you understand ALL the rules. I am finding this to be almost as difficult to deal with. It would be easy if 75% ARV was all you needed, but many of them want to see large cash reserves from you, certain income levels, and debt/income ratios within certain parameters before they will lend on even a refinance. If you don't understand this ahead of time you could find yourself at the end of your short term (very expensive) money and not be able to get your refinance through.

BRRRR is great in theory but in today market that model is out dated just like the 2% rule.. BRRRR is how we used to do most of the out of area rental property purchases prior to 07 you could make the numbers work and many times get not only all your cash back but an extra 5 to 8k on top all within your 75% arv.. that simply does not happen in todays market in most instances.. can it happen yes.. is it common not really. I think you see folks finally figuring it out.. some can do it if they really know how to get a deal but most cant do it